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Investor Traffic Heavy on 101 Tech Corridor

Business: Venture capital firms are focusing on the companies along the freeway. Area now rivals the Westside.

April 15, 2002|ZANTO PEABODY | TIMES STAFF WRITER

Like other technology centers, the western San Fernando Valley experienced a steep drop in investment during the dot-com bust, but has since rebounded and matches the Westside in popularity, a new report shows.

The old-economy ways of most of the privately held, bootstrap companies of the West Valley and eastern Ventura County shielded them from the worst of the high-tech fallout, according to the report by Larta, which conducts research on technology markets in California.

In 2000, the technology corridor that stretches along the Ventura Freeway from the San Fernando Valley to the Conejo Valley in Ventura County received a little less than 10% of the venture capital spent in Southern California, the report said. In contrast, high-tech firms in Santa Monica and the Westside received about 36%.

Since then, companies along the 101 corridor took in about 14% of the $835 million in investment dollars, a fraction of a percentage less than what Westside firms received, according to Larta's Sand Dollar Report on venture capital in Southern California.

"The Ventura Freeway corridor has a strong diversified economy," said Rohit Shukla, president and chief executive of Larta. He said spinoffs from defense and first-generation technology companies fertilized the ground for new businesses.

"There is access to a stock of reasonably good communities, good schools and a reasonable pool of intellectual capital," Shukla said.

The 101 corridor took root as a technology center in the 1970s when a few companies worked on U.S. Army projects. By the 1990s, entertainment and multimedia firms emerged, some from the former defense outfits. The advent of the Internet and businesses' dependence on computer networks gave rise to a crop of companies that dominates the hillside offices of the West Valley.

Computer hardware, network equipment and software design firms fill the office parks along the 101 Freeway, providing products such as video games and the digital sound systems used in major film releases.

The area's defense technology and talent provide fertile ground for growing companies, such as Westlake Village-based Inphi, which makes ultra-high speed network equipment. Two of Inphi's three founders came from HRL Laboratories (formerly Hughes Research Laboratories), an aerospace research firm in Malibu. Most of the other 45 employees cut their teeth at tech companies in the West Valley.

When the bottom began to fall out of the Bay Area's technology economy two years ago, venture capital firms started looking to Southern California, the report said. Inphi started in January 2001 with $12 million in funding from two Silicon Valley companies, Mayfield and Tallwood Venture Capital.

"We look at it like we came out at a good time," said Ann Dahlquist, Inphi marketing communications manager. A delay in demand for high-speed hardware gave Inphi time to develop its product, a device that translates digital information from cables to fiber optic lines.

"We were somewhat sheltered from the bust," Dahlquist said. "We came in after they separated wheat from chaff of start-ups that got money from the we'll-fund-anything period."

Jeffrey Starr of San Diego-based Mission Ventures agreed that investors overlooked much of the 101 corridor because they were distracted by businesses "with great parties and espresso."

"What remains there are what we have always looked for--businesses with deep technology that have defensible competitive business advantage."

The seaside digs of Santa Monica attracted more young companies when money flowed like wine, said Benjamin Kuo, publisher of an online news digest on local technology that reaches 4,000 subscribers, www.socaltech.com.

"They were hip, but now they're broke," Kuo said.

Kuo's site lists 241 tech companies along the Ventura Freeway, more than the 134 on the Westside and more than anywhere else in Los Angeles and Orange counties.

Since 1999, more foreign investors have discovered the 101's tech campuses. French technology firm Alcatel bought Xylan of Calabasas. British Spirent absorbed NetCom Systems, another Calabasas company. Small firms became part of larger ones and big ones became bigger.

Although the West Valley claims notable dot-com survivors such as United Online (formerly Netzero), it is also home to Homestore.com, which lost about $1.5 billion last year, according to the Securities and Exchange Commission.

Even so, the Southern California tech sector grew faster in the past year than other established silicon centers in the Bay Area, New York, Austin and Massachusetts, according to the Sand Dollar Report.

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